Post demonetisation, forensic experts help banks take account of fake notes

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MUMBAI: Banks have hired forensic experts to check which branches took in deposits of fake currency after demonetisation and to find out if any employees were involved, said people aware of the matter.

One such case brought to light the direct involvement of an employee, who helped a customer deposit fake currency notes, said an investigator. “Around December last year, the bank employee first took bundles of authentic Rs 500 denomination notes and gave them to a customer. The customer gave fake currency notes of similar amount and denomination, which were then kept in the bundle of cash deposited by separate customers,” the person said. “Later, the customer deposited original but old currency notes in his and his family’s bank accounts.”

Another investigator said the paper trail was being combed through. “Banks had assigned batch numbers to all the cash deposits they received and from that the time range of the deposits and branch was derived. Some internal backward tracking could be done and there is a way to find the source of fake currency deposits,” the person said.

Much of the counterfeit notes slipped through because it was difficult to check for fakes amid the rush as people sought to exchange and deposit notes following demonetisation, which was announced on November 8.

The demonetisation move, aimed at eradicating black money, fake notes and corruption, saw almost 86% of currency ceasing to be legal tender.

“We have engaged forensic auditors … most of our branches especially in rural areas and some in metros didn’t have fake currency detectors,” said an executive at a state-owned bank. “The rush was such that our tellers didn’t have time to engage in any other activity, apart from dealing with the huge crowds at our branches.”

The managing director of a top private sector bank said fake notes weren’t such a significant issue. “What happens is sometimes when the rush is too much and if the fake is very good, then a small branch may not be able to detect it,” he said. “We had instituted that all large deposits have to go to our currency chest where there is fake currency detection.

So did we end up with some small amount of fake currency? Yes, but nothing to be concerned about.”

Banks had reported large transactions to the Financial Intelligence Unit (FIU) that were suspected to include fake notes, but there is no estimate of the amount. The Reserve Bank of India is said to have detected the fake notes and asked banks to find out where they came from, a top banker said.

“We have had a discussion with the regulator as well, and it was clearly mandated to find the origin of this fake currency,” a private lender said. “The investigations are underway and it’s likely that bulk of this came from high-value suspicious transactions which we have already reported to FIU.”

In another incident involving a public-sector bank, investigations suggested that two employees may have been directly involved in depositing fake currency.

“Investigations point out that these employees took commission to convert fake currency notes to real ones. The issue is prevalent throughout banks and branches,” said a partner at a consultancy investigating the matter.

Experts said banks including State Bank of IndiaBSE -0.42 %, Bank of BarodaBSE -0.16 %, HDFC BankBSE 0.37 %, ICICI BankBSE -0.99 %, Axis BankBSE -0.11 % and Kotak Mahindra BankBSE 0.36 % had to deal with the issue of fake currency notes.

The banks didn’t respond to questions.

Fake notes were also deposited at micro-ATMs through the business correspondent network. Fearing misuse of the channel, banks had capped cash withdrawals and deposits at Rs 2,000.

“We have faced one such situation whereby Rs 50,000 all-fake currency was collected at a BC (business correspondent) point. Now that person is totally in the lurch,” another banker said. “So we put a cap of Rs 2,000 cash out and cash in to protect BCs.